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The Employee Retention Credit: Urgent Changes and What They Mean for Your Business

September 14, 2023


Jonathan Cardella

Strike Summary

  • There are certain restrictions when taking advantage of both Sections 174 deduction/capitalization and Section 41, which can be seen in Section 280C.
  • Businesses that choose to elect Section 280C for their federal taxes could also lower their state taxes as well.
  • Taxpayers that want to use Section 280C must plan ahead because it can only be used on an originally filed return.
  • The recent passage of the Tax Cuts and Jobs Act may have have affected whether a taxpayer should use Section 280C in their tax strategy.

Work with Strike to navigate tax changes with ease.

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We know that you rely on our expertise to keep you in the loop about important tax news, especially when it affects your business directly. Today, we bring you a critical update from the IRS about the Employee Retention Credit (ERC) that demands immediate attention.

Immediate Moratorium on New ERC Claims

On September 14, 2023 the IRS issued a moratorium on new claims for the ERC, immediately halting all processing of new claims at least through the end of the year. The drastic stance taken is aimed at preventing fraudulent claims and protecting honest businesses like yours from falling prey to scams.

This pause is a response to a growing trend of ineligible claims—promoted by aggressive marketers—that endanger not just the businesses filing these claims but the tax system as a whole. While Strike operates with honesty and integrity, having substantiated 100% of all of its clients’ filed claims, not all ERC providers are the same.

What This Means To You

If you’ve already filed for the ERC, don't panic. The IRS will continue to process previously filed claims, albeit at a slower pace due to a new stringent compliance review process. Previously, claims had a standard processing goal of 90 days, but you should now expect a timeline extending up to 180 days or more, particularly if your claim goes under review or audit.

The ultimate goal is to prevent continued abuse of the program, while keeping it alive to provide the much needed benefit to truly qualified businesses. In an effort to crack down on fraudulent claims, those found guilty could face severe legal repercussions. Stamping out the abuse can be difficult, as the firms conducting these questionable studies are not listed on the filing documents of the businesses claiming the credit. 

It’s essential to be cautious if you’re considering filing an ERC claim and vetting different firms. It can be hard to know up front if the firm you’ve contracted with has a history of improperly filed ERC claims. Be diligent in your questions and trust your gut. Erroneous claims can lead to repayment obligations, penalties, and interest. Look for firms like Strike Tax Advisory that operate on a success-based fee structure, meaning that they don’t invoice you their fee until you’ve received your credit from the IRS. Also consider whether they stand behind their work by providing (unlimited) support for any tax authority review of your ERC claim and whether they charge extra for this service. Finally, do they guarantee their work by offering a warranty for the three year statute of limitations that tax authorities typically have to review your claim? This guarantee can come in the form of an obligation to return any fees collected if the credits are lost under review, as well as providing the audit support services without charging additional fees.

How to Move Forward

For Pending Claims: Be prepared for longer wait times and ensure you have all the necessary supporting documentation.

For New Filers: If you’re confident in the validity of your claim we encourage you to file now to hold your space in line. If you have any shred of doubt as to the legitimacy of your ERC claim, we recommend you seek a second opinion. Strike Tax Advisors can assist you with a re-evaluation of your ERC claim. Schedule time with our team today.

For Incorrectly Filed Claims: Look for the option to withdraw your claim if it hasn't been processed yet. This can save you from potential issues down the line, as the IRS is actively investigating and prosecuting ERC abuses. Even if your claim is already under audit, it can be retracted to avoid penalties.

For those who have improperly received an ERC credit, the IRS is rolling out a settlement program for businesses to come clean to avoid penalties and future compliance actions.

The IRS specifically noted that many abusive claims improperly cite supply chain issues as the basis for qualification, however, upon closer inspection, this is rarely the case. The IRS previously guided tax payers on supply chain disruptions as a basis for ERC qualification, stating that a company’s supplier(s) or supply had to be disrupted by specific government COVID-related shutdown orders and no alternate supply or supplier was available (regardless of price increases).

Strike is Committed to Loyally Serving its Clients

With all these sudden changes, having a reliable and knowledgeable tax advisor has never been more important. Strike Tax Advisory is committed to guiding you through these turbulent times, putting your interests first while ensuring strict adherence to IRS guidelines. We specialize in navigating complex tax matters and are here to help you make the best decisions for your business.

For more information and guidance on the ERC, feel free to reach out to us directly or visit the IRS’s official Employee Retention Credit page. If you believe you’ve been a victim of fraudulent ERC services, the IRS encourages you to mail or fax a completed Form 14242, Report Suspected Abusive Tax Promotions or Preparers along with any supporting documentation.

Your financial well-being is at the forefront of our minds. Let’s steer through these complexities together, one tax issue at a time.

Contact Strike to talk about how this moratorium will impact your ability to claim your ERC refund.

Disclaimer: This blog post is intended for informational purposes only and should not be construed as financial, legal, or tax advice.

Work with Strike to navigate tax changes with ease.

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